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Dark clouds hovering over the financial markets

Dark clouds hovering over the financial markets

The optimistic mood from yesterday flipped 180 degrees today.

The announcement that real estate firm Evergrande officially defaulted on its overseas bonds did not help in terms of overall risks. However, Fitch's downgrade of both the company and Kaisa did not upset the domestic markets in China, mainly because of China’s Central Bank statements that the situation was contained.

The break in the recent optimism this week has a lot to do with next week’s events - the major central banks’ meeting - especially the Federal Reserve - from which more restrictive monetary policy decisions are expected. Uncertainty surrounding the ongoing research on the severity of the Omicron variant also plays a significant role.

An economic figure of great relevance is going to come out today - the North American CPI for November. This report will have the same importance as the employment data since the Fed has already recognized its concerns about inflation. The forecasts favor an increase to 6.8% year-on-year, a number not seen in decades.

Some statements by President Powell yesterday have raised worries in the market because the Fed president tried to downplay a potential high inflation figure.

If the figure is adjusted to the forecasts of 6.8% or even worse, the market would further advance its expectations of interest rate hikes, which would negatively affect the markets.

The most affected North American index was Tech100, which is more sensitive to interest rates and more exposed to China. The index closed the day 1.52% down after failing to overcome the resistance level of 16,451.

Oil has followed in the wake of the stock market, driven by risk aversion and more pessimistic growth expectations in global demand.

Technically, oil continues to maintain the last downtrend - with the rise of the previous five days considered a correction - and is approaching the 200-day moving average, now located at 70.26. This would act as support and reference point to define the future trend.

Sources: Bloomberg, Reuters.

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.

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